SABINE RIVER AUTHORITY OF TEXAS SABINE RIVER AUTHORITY…app1.lla.state.la.us/PublicReports.nsf/CACE118B8F25682E... · George A. Lewis, CPA* 1992 Geraldine J. Wimberley, CPA* 1995

06KOV 13 AMI'55

SABINE RIVER AUTHORITY OF TEXASAND

SABINE RIVER AUTHORITY,STATE OF LOUISIANA

TOLEDO BEND - JOINT OPERATIONWATER SUPPLY HYDROELECTRIC SYSTEM FUND

FINANCIAL REPORTAUGUST 31, 2006

Under provisions of state law, this report is a publicdocument. Acopy of the report has been submitted tothe entity and other appropriate public officials. Thereport is available for public inspection at the BatonRouge office of the Legislative Auditor and, whereappropriate, at the office of the parish clerk of court.

Release Date / /-I 5~Q

C O N T E N T S

Page

INDEPENDENT AUDITORS' REPORT ONTHE FINANCIAL STATEMENTS 1 and 2

MANAGEMENT'S DISCUSSION AND ANALYSIS 3 and 4

BASIC FINANCIAL STATEMENTS

Statements of net assets 6Statements of revenues, expenses and changes

in fund net assets 7Statements of cash flows 8Notes to financial statements 9 - 1 2

SUPPLEMENTAL INFORMATION

Schedule of insurance in force 13

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGAND ON COMPLIANCE AND OTHER MATTERS BASEDON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 15 and 16

Schedule of findings and questioned costs 17

Schedule of prior year findings 18

- i -

BROUSSARD, POCHE, LEWIS & BREAUX, L.L.P.

C E R T I F I E D P U B L I C A C C O U N T A N T S

4112 West CongressP. O. Box 61400

Lafayette, Louisiana 70596-1400phone: (337) 988-4930

fax: (337) 984-4574www.bplb.com

Other Offices:

Crowley, LA(337) 783-5693

Opelousas, LA(337) 942-5217

Abbeville, LA(337) 898-1497

New Iberia, LA(337) 364-4554

Church Point, LA(337) 684-2855

Herbert Lemoine II, CPA*

Frank A. Stagno, CPA*

Scott J. Broussard, CPA*

L. Charles Abshire, CPA*

P. John Blanchet III, CPA*

Craig C. Babineaux, CPA*

Peter C. Borrello, CPA*

George J. Trappey III, CPA*

Patrick D. McCarthy, CPA*

Martha B. Wyatt, CPA*

Fayetta T. Dupre CPA*

Mary A. Castille, CPA*

Joey L. Breaux, CPA*

Terrel P. Dressel, CPA*

Craig J. Viator, CPA*

Stacey E. Singleton, CPA*

John L. htre, CPA*

Ret (red:

Sidney L. Broussard, CPA 1925-2005

Leon K. Poehe, CPA 1984

James H. Breaux, CPA 1987

Erma R. Walton, CPA 1988

George A. Lewis, CPA* 1992

Geraldine J. Wimberley, CPA* 1995

Lawrence A. Cramer, CPA* 1999

Balph Friend, CPA* 2002

Donald W. Kelley, CPA* 2005

INDEPENDENT AUDITORS' REPORTON THE FINANCIAL STATEMENTS

To the Board of Directors,Sabine River Authority of Texas, and

The Board of Commissioners,Sabine River Authority, State of Louisiana

We have audited the accompanying basic financial statements of theToledo Bend - Joint Operation, a joint operation between the SabineRiver Authority of Texas and Sabine River Authority, State ofLouisiana, as of and for the years ended August 31, 2006 and 2005.These financial statements are the responsibility of the JointOperation's management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standardsgenerally accepted in the United States of America and thestandards applicable to financial audits contained in GovernmentAuditing Standards, issued by the Comptroller General of the UnitedStates. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, the basic financial statements referred to abovepresent fairly, in all material respects, the financial position ofthe Toledo Bend - Joint Operation as of August 31, 2006 and 2005,and the results of its operations and cash flows for the years thenended in conformity with accounting principles generally acceptedin the United States of America.

Members of American Institute ofCertified Public AccountantsSociety of Louisiana CertifiedPublic Accountants

*A Professional Accounting Corporation

_ 1 _

The Management's discussion and analysis on pages 3 and 4 is not a required part of thebasic financial statements but is supplementary information required by accountingprinciples generally accepted in the United States of America. We have applied certainlimited procedures, which consisted principally of inquiries of management regardingthe methods of measurement and presentation of the required supplementary information.However, we did not audit the information and express no opinion on it.

In accordance with Government Auditing Standards, we have also issued our report datedSeptember 26, 2006, on our consideration of the Toledo Bend - Joint Operation'sinternal control over financial reporting and our tests of its compliance with certainprovisions of laws, regulations and contracts and grant agreements and other matters.The purpose of that report is to describe the scope of our testing of internal controlover financial reporting and compliance and the results of that testing, and not toprovide an opinion on the internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with GovernmentAuditing Standards and should be considered in assessing the results of our audit.

Our audit was made for the purpose of forming an opinion on the basic financialstatements taken as a whole. The accompanying supplemental information schedule listedin the table of contents is presented for the purpose of additional analysis and is nota required part of the basic financial statements of Toledo Bend - Joint Operations.Such information has been subjected to the auditing procedures applied in the audit ofthe basic financial statements and, in our opinion, such information is fairly statedin all material respects in relation to the basic financial statements taken as awhole.

Lafayette, LouisianaSeptember 26, 2006

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MANAGEMENT'S DISCUSSION AND ANALYSIS

This section of the Toledo Bend - Joint Operation (TBJO) annual financial reportpresents a discussion and analysis of TBJO's financial performance during the fiscalyear that ended August 31, 2006. Please read this section in conjunction with TBJO'sfinancial statements, which follow this section.

FINANCIAL HIGHLIGHTS

TBJO's net assets overall decreased from $63,860,039 to $63,088,943 or 1.21% fromAugust 31, 2005 to August 31, 2006. The main reason for this change was the decreasein depreciable capital assets due to the recognition of depreciation expense.

TBJO's intergovernmental revenues remained unchanged at $1,600,000 from August 31, 2005to August 31, 2006. The Operation's loss decreased to $2,371,096 from $2,413,064 or1.74% for the year ended August 31, 2006.

OVERVIEW OF THE FINANCIAL STATEMENTS

The financial report consists of three parts: Management's Discussion and Analysis(this section), the basic financial statements, and the notes to the financialstatements.

The basic financial statements present information for the Operation as a whole, in aformat designed to make the statements easier for the reader to understand. Thestatements in this section include the statement of net assets and the statement ofrevenues, expenses and changes in fund net assets.

The statement of net assets presents the assets and liabilities. The differencebetween total assets and total liabilities is the net assets and may provide a usefulindicator of whether the financial position of the Operation is improving ordeteriorating.

The statement of revenues, expenses and changes in fund net assets presents informationshowing how the Operation's assets changed as a result of current year operations.Regardless of when cash is affected, all changes in net assets are reported when theunderlying transactions occur. As a result, transactions are recorded that will notaffect cash until future periods.

The financial statements provide information about TBJO's overall financial status.The financial statements also include notes that explain some of the information in thefinancial statements and provide more detailed data.

TBJO's financial statements are prepared on an accrual basis in conformity withaccounting principles generally accepted in the United States of America (GAAP) asapplied to government units. Under this basis of accounting, revenues are recognizedin the period in which they are earned and expenses are recognized in the period inwhich they are incurred. All assets and liabilities associated with the operation ofTBJO are included in the statement of net assets.

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FINANCIAL ANALYSIS

Net Assets

TBJO's total net assets at August 31, 2006 decreased by $771,096, a 1.21% decrease fromAugust 31, 2005. The decrease in total net assets is the result of the reduction incapital assets from the recognition of depreciation expense. Total assets decreased1.04% or $662,100 and total liabilities increased 1,216.89% or $108,996.

Changes in Net Assets

The change in net assets at August 31, 2006 is $771,096 or 1.21% less than atAugust 31, 2005. TBJO's operating loss decreased to $2,377,998 or 2.27% less than atAugust 31, 2005. For the same period, transfers in remained unchanged at $1,600,000.The expenses are detailed below.

TBJO's General Operating Expenses

2006 2005General operating expenses:

Salaries and feesSuppliesMaintenanceSundry chargesDepreciationMiscellaneous

Total

$1,575,29075,04698,924115,400757,340162,003

$1,622,01976,71479,926117,170758,119174,055

52.784.003 52.828.003

CURRENTLY KNOWN FACTS, DECISIONS, OR CONDITIONS

There are currently no known facts, decisions, or conditions that are expected to havea significant effect on financial position or results of operations.

CONTACTING TBJO'S FINANCIAL MANAGEMENT

This financial report is designated to provide our legislatures, state officials, theLouisiana Legislative Auditor's office, patrons, and other interested parties with ageneral overview of TBJO's finances and to demonstrate TBJO's accountability for themoney it receives. If you have questions about this report or need additionalfinancial information, contact Ms. Debra Stagner at (409) 746-2192.

- 4 -

BASIC FINANCIAL STATEMENTS

TOLEDO BEND - JOINT OPERATION

STATEMENTS OF NET ASSETSAugust 31, 2006 and 2005

ASSETS

CURRENT ASSETS:CashPrepaid expenses

PROPERTY, PLANT AND EQUIPMENT:Depreciable capital assets, net

Total assets

LIABILITIES

CURRENT LIABILITIES:Accounts payable

Total liabilities

NET ASSETS

Invested in capital assets, net of related debtRestrictedUnrestricted

Total net assets

2006 2005

$ 114,41,

155,

63,051,

3,206,

117,

117,

63,051,41,(3,

295139

434

462

896

953

953

462114633)

$ 44,33546,134

90,469

63,778,527

63,868,996

8,957

8,957

63,778,52746,10935,403

$63.088.943 563.860.039

See Notes to Financial Statements.

- 6 -

TOLEDO BEND - JOINT OPERATION

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN FUND NET ASSETSYears Ended August 31, 2006 and 2005

2006 2005OPERATING REVENUES

Miscellaneous

OPERATING EXPENSESSalaries and feesSuppliesMaintenance:

StructuresEquipment

Sundry chargesMiscellaneousDepreciation

Total operating expenses

Operating loss

Nonoperating revenue and expenses:Gain (loss) on disposal of fixed assets

Loss before contributions andtransfers

Capital transfers inCapital transfers out

Change in net assets

Net assets, beginning

Net assets, ending

$ 406,005 $ 394,868

1,575,29075,046

6,902

1,622,01976,714

41,619 31,35757,305 48,569115,400 117,170162,003 174,055757,340 758,119

2,784,003 2,828,003

(2,377,998) (2,433,135)

20,071

(2,371,096) (2,413,064)

1,600,000 1,600,000- (165,937)

(771,096) (979,001)

63,860,039 64,839,040

563.088.943 $63.860.039

See Notes to Financial Statements.

- 7 -

TOLEDO BEND - JOINT OPERATION

STATEMENTS OF CASH FLOWSYears Ended August 31, 2006 and 2005

2006 2005CASH FLOWS FROM OPERATING ACTIVITIES

Paid to suppliersOther receipts

Net cash used in operating activities

CASH FLOWS FROM CAPITAL AND RELATEDFINANCING ACTIVITIES

Capital transfers inCapital transfers outPurchases of fixed assets

Net cash provided by capital andrelated financing activities

Net increase (decrease) in cash and cash equivalents

Balance, at beginning of year

Balance, at ending of year

$(1,912,672) $(2,061,896)406,005 394,868

(1,506,667) (1,667,028)

1,600,000 1,600,000(165,937)

(23,373) (149,958)

1,576,627 1,284,105

69,960 (382,923)

44,335 427,258

5 114.295 5 44.335

Reconciliation of operating income to net cashprovided by (used in) operating activities:

Operating lossAdjustments to reconcile operating income to

net cash provided by (used in) operating activities;Depreciation expense

Changes in assets and liabilities:Prepaid expensesAccounts payables

Net cash used inoperating activities

$(2,377,998) $(2,433,135]

757,340

4,995108,996

758,119

24,076(16,088)

5(1.506.667) 5(1.667.028)

See Notes to Financial Statements.

TOLEDO BEND - JOINT OPERATION

NOTES TO FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

The financial statements of the Toledo Bend - Joint Operation have beenprepared in conformity with generally accepted accounting principles (GAAP)as applied to governmental units. The Governmental Accounting StandardsBoard (GASB) is the accepted standard-setting body for establishinggovernmental accounting and financial reporting principles. ToledoBend - Joint Operations applies all relevant GASB pronouncements andapplicable Financial Accounting Standards Board (FASB) pronouncements andAccounting Principles Board (APB) opinions issued on or before November 30,1989, unless they conflict with GASB pronouncements. The more significant ofthe Operation's accounting policies are described below.

This financial report has been prepared in conformity with GASB StatementNo. 34, "Basic Financial Statements and Management's Discussion and Analysisfor State and Local Government," issued in June 1999.

Reporting entity:

The Toledo Bend - Joint Operation is a joint operation between the SabineRiver Authority of Texas and Sabine River Authority, State of Louisiana,and was established by joint resolution of the Texas and Louisiana SabineRiver Authority. The operation is administered by an Operating Boardcomposed of three members appointed by the Texas Authority and threemembers appointed by the Louisiana Authority.

Basis of presentation:

The financial statements were prepared using the economic resourcesmeasurement focus and the accrual basis of accounting. Revenues, expenses,gains, losses, assets and liabilities resulting from exchange orexchange-like transactions are recognized when the exchange occurs(regardless of when cash is received or disbursed). Revenues, expenses,gains, losses, assets and liabilities resulting from nonexchangetransactions are recognized in accordance with the requirements of GASBStatement No. 33, "Accounting and Financial Reporting for NonexchangeTransactions.*

Operating income reported within the financial statements includes revenuesand expenses related to the primary continuing operations of the fund.Principal operating revenues include water royalties as well as othermiscellaneous charges. Principal operating expenses are the costsassociated with the operations of the fund and include administrativeexpenses and depreciation of capital assets. Other revenues and expensesare classified as nonoperating in the financial statements.

- 9 -

NOTES TO FINANCIAL STATEMENTS

Proprietary funds are accounted for using a flow of economic resourcesmeasurement focus and a determination of net income and capitalmaintenance. With this measurement focus, all assets and liabilitiesassociated with the operation of these funds are included on the balancesheet. The proprietary fund uses the accrual basis of accounting.Revenues are recognized when they are earned, and expenses are recognizedat the time liabilities are incurred.

Cash and cash equivalents:

All highly liquid investments and deposit accounts with an originalmaturity of three months or less are considered to be cash and cashequivalents.

Capital assets:

Capital assets, which include the dam, spillway, hydroelectric power plant,reservoir, waterways, buildings, structures and equipment are reported athistorical cost. All capital assets are depreciated using thestraight-line method over the following estimated useful lives:

Dam and spillwayHydroelectric power plantBuildings, structures and equipment

Years

6767

5 - 5 0

Note 2. Changes in Capital Assets

The following is a summary of changes in capital assets:

Dam and spillwayHydroelectric powerplant

Reservoir andwaterways

Buildings, structuresand equipment

Balance09/01/05

$18,659,332

25,410,994

36,001, 159

1,866,708

BalanceAdditions Deletions 08/31/06

$ - $ - $18,659,332

25,410,994

36,001,159

37,732 40,895 1,863,545

81,938,193 37,732 40,895 81,935,030

(continued)

- 10 -

NOTES TO FINANCIAL STATEMENTS

Less accumulateddepreciation for:Dam and spillwayHydroelectricpower plant

Buildings,structures andequipment

Capital assets, net

Balance Balance09/01/05 Additions Deletions 08/31/06

8,754,019 279,890

8,119,160 381,165

1,286,487 96,285

9,033,909

8,500,325

33,438 1,349,334

18,159,666 757,340 33,438 18,883,568

563.778.527 5 (719.608) $ 7.457 563.051.462

Note 3. Contingent Liabilities

Public Law 98-571 directed the Federal Energy Regulatory Commission (FERC) towaive annual administration charges for the use of United States lands duringthe remaining term of the license to operate the Joint Project. The licenseexpires 50 years from October 1, 1963. The waiver is contingent upon FERCdetermining that the power from the project is sold to the public withoutprofit. All exemptions applied for through August 31, 2005 have beenapproved.

Note 4. Service Items

Service items included in the categories salaries and fees represent theexpenses incurred by Sabine River Authority of Texas and Sabine RiverAuthority, State of Louisiana, individually, for the Joint Operation WaterSupply and Hydroelectric System Fund. The associated expense was $1,296,994and $1,234,366 as of August 31, 2006 and 2005, respectively.

Note 5. Deposits

At year end, the carrying amount of the Operation's deposits was $114,295 andthe bank balance was $125,955. All of the bank balance was covered byfederal depository insurance. Accordingly, the Operation did not have anycustodial credit risk at August 31, 2006.

Note 6. Litigation

The Operation is subject to various claims and lawsuits which may arise inthe ordinary course of business. After consulting with counsel representingthe Operation in connection with such claims and lawsuits, it is the opinionof management and counsel that the disposition or ultimate determination ofsuch claims and lawsuits cannot be estimated at this time and could have amaterial effect on the financial position of the Operation.

- 11 -

NOTES TO FINANCIAL STATEMENTS

Note 7. Risk Management

Toledo Bend - Joint Operations is subject to risk of loss resulting fromclaims and judgments which may arise in the normal course of business.Significant losses resulting from such claims are covered by commercialinsurance.

Note 8. Reclassifications

Certain reclassifications have been made to amounts reported as of August 31,2005 to be consistent with presentation in the current year. Thesereclassifications had no effect on net assets or changes in net assets aspreviously reported.

- 12 -

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- 14 -

BROUSSARD, POCHE^LEWIS & BREAUX, L.L.P.C E R T I F I E D P U B L I C A C C O U N T A N T S

4112 West CongressP. O. Box 61400

Lafayette, Louisiana 70596-1400phone: (337) 988-4930

fax: (337) 984-4574

www.bplb.com

Other Offices:

Crowley, LA(337) 783-5693

Opelousas, LA(337)942-5217

Abbeville, LA(337) 898-1497

New Iberia, LA(337) 364-1554

Church Point, LA(337) 684-2855

Herbert Lemoine U, CPA*

Frank A. Stagno, CPA*

Scott J. Broussard, CPA*

L. Charles Abshire, CPA*

P. John Blanchet III, CPA*

Craig C. Babineaux, CPA*

Peter C. Borrello, CPA*

George J. Trappey III, CPA*

Patrick D. McCarthy, CPA*

Martha B. Wyatt, CPA*

Fayetta T. Dupre CPA*

Mary A. Castille, CPA*

Joey L. Breaux, CPA*

Terrel P. Dressel, CPA*

Craig J. Viator, CPA*

Stacey E, Singleton, CPA*

John L. Istre, CPA*

Retired:

Sidney L. Brouesard, CPA 1925-2005

Leon K. Poche, CPA 1984

James H. Breaux, CPA 1987

Erma R. Walton, CPA 1988

George A. Lewis, CPA* 1992

Geraldine J. Wimberley, CPA* 1995

Lawrence A. Cramer, CPA* 1999

Ralph Friend, CPA* 2002

Donald W. Kelley, CPA* 2005

REPORT ON INTERNAL CONTROL OVER FINANCIALREPORTING AND ON COMPLIANCE AND OTHER MATTERS BASEDON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED INACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

To the Board of Directors,Sabine River Authority of Texas, and

The Board of Commissioners,Sabine River Authority, State of Louisiana

We have audited the financial statements of the Toledo Bend - JointOperation, a joint operation between the Sabine River Authority ofTexas and Sabine River Authority, State of Louisiana as of and forthe year ended August 31, 2006, and have issued our report thereondated September 26, 2006. We conducted our audit in accordancewith auditing standards generally accepted in the United States ofAmerica and the standards applicable to financial audits containedin Government Auditing Standards, issued by the Comptroller Generalof the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the ToledoBend - Joint Operation's internal control over financial reportingin order to determine our auditing procedures for the purpose ofexpressing our opinion on the financial statements and not toprovide assurance on the internal control over financial reporting.Our consideration of the internal control over financial reportingwould not necessarily disclose all matters in the internal controlover financial reporting that might be material weaknesses. Amaterial weakness is a reportable condition in which the design oroperation of one or more of the internal control components doesnot reduce to a relatively low level the risk that misstatements inamounts that would be material in relation to the financialstatements being audited may occur and not be detected within atimely period by employees in the normal course of performing theirassigned functions. We noted no matters involving the internalcontrol over financial reporting and its operation that we considerto be material weaknesses.

Members of American Institute ofCertified Public AccountantsSociety of Louisiana CertifiedPublic Accountants

*A Professional Accounting Corporation- 15 -

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Toledo Bend - JointOperation's financial statements are free of material misstatement, we performed testsof its compliance with certain provisions of laws, regulations, contracts and grantagreements noncompliance with which could have a direct and material effect on thedetermination of financial statement amounts. However, providing an opinion oncompliance with those provisions was not an objective of our audit and, accordingly, wedo not express such an opinion. The results of our tests disclosed no instances ofnoncompliance or other matters that are required to be reported under GovernmentAuditing Standards.

This report is intended for the information of management. However, this report is amatter of public record and its distribution is not limited.

C

Lafayette, LouisianaSeptember 26, 2006

- 16 -

TOLEDO BEND - JOINT OPERATIONWATER SUPPLY AND HYDROELECTRIC SYSTEM FUND

SCHEDULE OF FINDINGS AND QUESTIONED COSTSYear Ended August 31, 2006

We have audited the financial statements of Toledo Bend - Joint Operation, a jointoperation between the Sabine River Authority of Texas and Sabine River Authority, Stateof Louisiana, as of and for the year ended August 31, 2006, and have issued our reportthereon dated September 26, 2006. We conducted our audit in accordance with auditingstandards generally accepted in the United States of America and the standardsapplicable to financial audits contained in Government Auditing Standards, issued bythe Comptroller General of the United States. Our audit of the financial statements asof August 31, 2006 resulted in an unqualified opinion.

Section I - Summary of Auditors' Reports

A. Report on Internal Control and Compliance Material to the Financial Statements

Internal ControlMaterial Weaknesses Yes X NoReportable Conditions Yes X None Reported

ComplianceCompliance Material to Financial Statements Yes X No

Section II - Financial Statement Findings

No matters are reported.

- 17 -

TOLEDO BEND - JOINT OPERATIONWATER SUPPLY AND HYDROELECTRIC SYSTEM FUND

SCHEDULE OF PRIOR YEAR FINDINGSFor the Year Ended August 31, 2006

Section I. Internal Control and Compliance Material to the Financial Statements

None reported.

Section II. Internal Control and Compliance Material to Federal Awards

Not applicable.

Section III. Management Letter

The prior year's report did not include a management letter.

- 18 -